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Following a revision of end-year inflation from 11.5 percent to 13.7 percent in the Mid-Year Review of the 2015 Budget, Ghanaians should expect a further increase in their cost of living and interest rates at least for the rest of the year, a senior economist who decided to remain anonymous told Business Finder.

From the supplementary budget released by the Finance Minister on Tuesday July 21, government re-emphasized its intention to continue with the tight fiscal policy supported by the International Monetary Fund(IMF). This ultimately also triggered a re-vision of the country’s growth rate from an initial 3.9 per cent to 3.5 per cent for 2015.

Already, Ghanaians are paying more for fuel and transport fares, while prices of items have shot up though most of their disposable incomes from a year ago have remained relatively unchanged.

Inflation which is directly proportional to interest rate hit 17.1 percent in June 2015, a situation that compelled the Bank of Ghana (BoG) to maintain the policy rate at 22 percent instead of reducing it marginally despite a significant depreciation in the cedi. The cedi had fallen from about 26.2 per cent depreciation in June 30 to 3.4 per cent in July 14.

The BoG said in its report that the tight monetary policy stance, evidenced by the tight liquidity conditions in the banking sector has contributed to the improvement in the inflation outlook and is expected to continue.

Investment firm, Investcorp had earlier on projected an end year rate of 27.50 percent for the 91-day Treasury bill- a key indicator for determining lending rates.

A school of thought states that the higher the interest rate for money market instruments particularly the 91-day bill, the higher the lending rates while banks freeze or reduce their lending because of high default rate.

Investcorp in its analysis said “Ghana’s long history with abnormal yield curves, where short-term interest rates are higher than relatively long-term interest rates, makes it more effective and easy to price debt instruments with the benchmark 91-day T bill rate.”

It continued that “using this dynamic, we have observed that interest rates do compensate for currency risk at least over a 3-year cycle.”

Economist and financial analyst, John Gatsi expressed worry about the energy crisis and the exchange rate volatility which he described has hit businesses hard and increased cost of living.

He also said the debt level of the nation is alarming, adding, there is high cost for the nation to pay.

Some captains of industry have also expressed concern about the short term stability of the Cedi, describing it as not sustainable going forward.

CEO of Dalex Finance Ken Thomposn told this paper that unless the structural issues with the Ghanaian economy is fixed, the cedi’s poor performance against the US Dollar will continue.

According to him, the management of Ghana’s economy is ‘elitist’, favouring the few who need foreign exchange to pay their children’s school fees and service overseas mortgages. “Nobody considers the effects of an overvalued currency on our farmers and industry”, he added.

Government said in the Mid-Year-Review Budget that it will reduce its spending in order to keep the fiscal deficit in check. It is however seeking parliamentary approval to spend and additional GH¢865.78 million for the rest of the year
The 2015 Budget is aimed at reducing the fiscal deficit from 10.2 percent of GDP in 2014 to 6.5 percent of GDP in 2015.

Finance Minister, Seth Tekper said in Parliament on Tuesday that while the 2015 Budget continues to reinforce earlier policies of revenue enhancement, debt management, expenditure realignment, and rationalization measures as well as reforms, government proposes to revise this target to respond to the significant fall in crude oil prices.

Preliminary fiscal data for January to May 2015 indicates an over performance in revenue and grants whiles expenditures were below target for the period.

This resulted in a cash fiscal deficit equivalent to 1.9 percent of GDP, against a target of 3.4 percent. This is compared to a deficit of 3.7 percent of GDP for the same period in 2014.

However, grant disbursements from the nation’s development partners was GH¢325.1 million, 44.8 percent lower than the budget target and 3.0 percent higher than the outturn recorded during the same period in 2014.

The lower than expected outturn of grants was due to the slow disbursement of project grants, which resulted in project implementation delays.